South Africa has reached a new low – and it could get worse: Reserve Bank

Staff Writer16 March 2023


South Africa is currently experiencing the lowest growth episode in its modern history, and the country’s growth outlook could see living standards slip even further, says Rashad Cassim, the deputy governor of the South African Reserve Bank (SARB).

Speaking at a recent central banking conference in Cape Town (14 March), the deputy governor said that the past few years have been remarkable for the country’s economy but for all the wrong reasons.

“Domestically, we are experiencing the lowest growth episode in modern South African history, marked most recently by the widespread failure of basic infrastructure – especially electricity.”

“Externally, we have been buffeted by a series of extraordinary shocks: the Covid-19 pandemic, the war in Ukraine, and a global inflation surge,” he said.

Cassim said that the central bank is expecting growth rates of 0.3%, 0.7% and 1.0% over the next three years – not a good outlook at all, he added.

These are disastrously low. Given population growth rates of around 1.2% annually, the implication is that living standards will continue to fall, as they have done on average since 2014,” he said.

Stats SA data revealed that load shedding has had a significant impact on the South African economy, with a quarterly seasonally adjusted contraction of 1.3% in Q4 2022.

This figure was three times worse than the market consensus, which predicted a contraction of 0.4% for the period.

This has raised concerns about a potential recession in South Africa due to persistent high-stage load shedding, with experts predicting another quarter of decline in Q1 2023.

Cassim said that growth forecasts remain low in light of supply-side dysfunction in the economy as well as the sustained rolling blackouts.

“We know electricity shortages have intensified; we expect to have 250 days of load-shedding this year, from 157 days last year and 48 days in 2021.”

This is a worse outlook than what the Reserve Bank had at its Monetary Policy Committee (MPC) meeting in January, where it anticipated 200 days of load shedding in 2023. It was on this basis that the SARB cut its growth outlook for 2023 to a paltry 0.3%.

“On top of that, the freight rail system has, for the most part, not been functioning optimally, removing another pillar of the economy’s productive potential. There are many other constraints in the economy that also suppress potential growth.”

Cassim said it is best that the bank’s forecast team face the facts squarely and mark down projections.

Another battle South Africa faces is that of inflation. As it stands, headline inflation is sitting at 6.9%, with core inflation at 4.9%.

The peak appears to have been in July last year when headline inflation hit 7.8%.

According to the central bank, this means that inflation has been outside the target range of between 3-6% since May 2022 despite continual interest rate hikes.

SARB now anticipates inflation to be back within the midpoint of its target range towards the end of this year. The International Monetary Fund has made similar predictions.

Cassim said that these predictions are encouraging only if there are no more shocks to the economy.

The Bureau for Economic Research (BER) has registered expectations that paint a bleaker outlook for inflation at 6.1% for 2023, up from 5.9% and 5.6%, up from 5.3%.

Cassim noted that the country could experience more shocks which the central bank would have to adjust to.

“Food inflation has been coming in higher than expected, and it surprised us once again in the latest consumer price index (CPI) release from Stats South Africa.”

“There is a global dynamic to elevated food price inflation, but now we are also worrying about load-shedding driving up food prices, as electricity shortages start to disrupt the production and storage of food,” Cassim said.

Cassim added that the exchange rate outlook has also taken a hit recently despite the US economy running hot and market pricing in more Fed hikes – pushing the rand to weaken from around R17 per dollar in January 2023 to over R18 more recently.

In his concluding remarks, Cassim said that if inflation did not ease, then rates would not fall into the markers that the central bank has set – having a knock-on effect on prices.

“There are clear risks of adverse developments, which could require further monetary policy action to contain inflation.”

He said that while the bank hopes for a soft landing, it is preparing for the worst.